Section 218 — Tax on business income of Offshore Banking…

No corresponding provision in the Income-tax Act, 1961. Section 218 was substituted by the Finance Act, 2026, w.e.f. 1-4-2026; the section it replaced corresponded to s. 115-I (Chapter not to apply if the assessee so chooses). STATUTORY…

Section 218 — TAX ON BUSINESS INCOME OF OFFSHORE BANKING UNITS OR INTERNATIONAL FINANCIAL SERVICES CENTRE UNIT

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on s. 147(3) IFSC specified income

Where the total income of an assessee includes income of the nature referred to in section 147(3), the aggregate of income-tax payable by the assessee shall be the aggregate of income-tax computed on the income specified in column B of the

36. Sections 217 and 218 substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to their substitution, sections 217 and 218 read as under : “217. Benefit under Chapter to be available in certain cases even after assessee becomes resi- dent.—Where a non-resident Indian in any tax year,—

(a) becomes assessable as a resident in India in respect of total income in a subsequent year; and

(b) furnishes a declaration in writing to the Assessing Officer along with his return of income under section 263 for the tax year for which he is so assessable, to the effect that provisions of sections 212 to 218 shall continue to apply to him in relation to the investment income derived from any foreign exchange asset referred to in section 212(e) other than shares in an Indian company, then the provisions of sections 212 to 218 shall continue to apply in relation to such income for that tax year and every subsequent tax year until the transfer or conversion (otherwise than by transfer) of such assets into money.

Chapter not to apply if the assessee so chooses.—A non-resident Indian may choose not to be governed by the provisions of sections 212 to 217 for any tax year by declaring it in his return of income under section 263 for such tax year, and if he does so,—

(a) the provisions of sections 212 to 217 shall not apply to him for that tax year, and

(b) his total income for that tax year shall be computed and charged to tax according to the other provisions of this Act.” Table below at the rate specified in the corresponding entry in column C of the said Table:

TABLE

Sl. No. Income Rate of income-tax payable

A B C

1. Income referred to in section 147(3) 15%

2. Total income as reduced by income referred Rates in force.] to in Sl. No. (1) Conversion of an Indian branch of foreign company into subsidiary Indian company.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
s. 218 — Tax on business income of Offshore Banking Units or International Financial Services Centre unit	No corresponding provision

STATUTORY ARCHITECTURE

Section 218 was substituted by the Finance Act, 2026, w.e.f. 1-4-2026. The substituted section is a special rate provision. Where the total income of an assessee includes income of the nature referred to in s. 147(3), the tax payable is the aggregate of the tax computed on each category of income in column B of the Table at the rate in column C.

Pre-2026 position: before substitution, s. 218 was headed "Chapter not to apply if the assessee so chooses". A non-resident Indian could choose not to be governed by ss. 212 to 217 for any tax year by declaring it in his return of income under s. 263 for that year; those sections then did not apply to him for that year, and his total income was computed and charged under the other provisions of the Act. That section corresponded to s. 115-I of the 1961 Act.

KEY ELEMENTS

Trigger: total income includes income of the nature referred to in s. 147(3).
Sl. No. 1: income referred to in s. 147(3) — 15%.
Sl. No. 2: total income as reduced by the income in Sl. No. 1 — rates in force.
Income within s. 147(3): income from (a) an Offshore Banking Unit located in a Special Economic Zone; (b) the business activities referred to in s. 6(1) of the Banking Regulation Act, 1949 with undertakings in a Special Economic Zone or with entities that develop, develop and operate, or develop, operate and maintain one; (c) the approved business activities of a Unit of an International Financial Services Centre set up in a Special Economic Zone; or (d) the transfer of an aircraft or ship leased by a unit in clause (c), if that unit commenced business operations by 31st March, 2030.

CHANGES FROM THE 1961 ACT

The current s. 218 has no 1961 counterpart; the pre-2026 s. 218 corresponded to s. 115-I of the 1961 Act. On the same substitution, the non-resident Indian's opt-out now appears in s. 217(2) (s. 217 is headed "Application of benefits under sections 212 to 216") and refers to ss. 212 to 216 instead of ss. 212 to 217.

PRACTITIONER NOTES

Material citing s. 218 for the opt-out relates to the position before 1-4-2026.
The 15% rate applies only to the s. 147(3) income; the remainder of total income is taxed at the rates in force.
Section 147(1) separately allows a deduction equal to 100% of s. 147(3) income to the assessees it lists. Section 218 does not say how it interacts with that deduction, so the two should be read together.

CROSS-REFERENCES

s. 147(3) — the income taxed at 15% under Sl. No. 1.
s. 147(1) — the deduction for the same income.
s. 217(2) — now contains the opt-out formerly in s. 218.
ss. 212 to 217 and s. 263 — referred to in the pre-2026 s. 218.
s. 115-I of the 1961 Act — counterpart of the pre-2026 s. 218.

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